London's FTSE 100 closed down 2.11% to 5,793.32, taken lower by oil and commodity-related stocks, which were put under pressure by the slump in crude prices that saw Brent and West Texas Intermediate both trading at $29.59 a barrel after losing 4.37% and 5.44% respectively.

"The oil supply glut in juxtaposition with the lessening demand is wholly more difficult to contain and with Iran set further increase volumes following the lift of sanctions, the trend remains to the downside," said London Capital Group analyst Brenda Kelly.

"It seems that fundamentals have been unceremoniously dumped in favour of a constant watch on the oil price, with this metric determining whether stock markets rise or fall," said IG's senior market analyst Chris Beauchamp.

At the other end of the scale, drink giant SABMiller edged in positive territory after announcing it would close its brewery in South Sudan due to issues in obtaining foreign exchange to buy raw material.

If the decline in oil prices hit commodity-related stocks on the FTSE 100, it was insurance companies that fared the worst on London's second=tier index, with Moneysupermarket.com leading the fallers after its fourth-quarter insurance revenues suffered from stronger-than-expected marketing activity by its rivals.

Jupiter Fund Management and lenders Aldermore Group were also among the main losers on the FTSE 250 on the back of the global sell-off, while there was better news for JD Sports, as the retailer extended the previous session gains and was firmly in positive territory.

Earlier in the session, data released by the Office for National Statistics showed Britain's construction output suffered an unexpected decline in November 2015, recording its biggest annual drop since May 2013.

Construction output declined 0.5% month-on-month compared with a 0.2% gain recorded in the previous month and with analysts' expectations for a 0.5% increase. On a year-on-year basis, output fell 1.1% against forecast for a 0.1% decline and sharply lower than the 1.1% increase registered in October.

"With construction output now set to subtract about 0.05 percentage points from quarter-on-quarter GDP growth, industrial production on track to merely hold steady in the fourth quarter and services output rising by just 0.1% month-to-month in October, we expect GDP to increase by just 0.4% in the fourth quarter with a weaker reading certainly possible," said Samuel Tombs, chief UK economist at Pantheon Macroeconomics.